Mortgage Bond Market Analysis - Economic Data and Janet Yellen

It's Hump Day.  In addition to it being the middle of the week, we also got some decently important data today.  Durable Goods Orders was released and the headline number came in better than expected at 0.0% - expectations were for -1.4%.  The other side of the cone is that last month they were up 3.6% so while we weren't negative today, there also wasn't any growth.  Perhaps more importantly, was the Ex-transportation number which came in at -.4% as expected.  This number is thought to be a more stable number and, thus, looked at a bit more closely and it wasn't good.

Yesterday the FNMA benchmark bond closed up  for the 6th day in a row.  It was up 5 basis points, 13 basis points off its high as the 2nd level of resistance (104.17) held strong with the bond closing at 104.12.  Today the bond is currently down 4 basis points after being up as high as +16 basis points on the day; it is 12 BP off the low.  The high levels of the day once again tested the 2nd resistance level and was once again pushed back.  The more times the bond tests the level and loses, the stronger that resistance becomes and the more likely we are to see a sell-off as the next big move.  In other words, we may have hit our high for this most recent run.

Janet Yellen is giving her prepared remarks to the House Financial Services Committee.  Her remarks that have been released don't address anything about a path of rate hikes.  She'll be speaking again tomorrow.  There are also a number of other Fed presidents / governors sharing their thoughts this week as well.

With the RSI still in the overbought range and the euphoria of the Fed leaving rates unchanged wearing off, in addition to the 2nd resistance level holding strong two days in a row, I will reiterate what I said on Monday:  Lock.  I think there is much more potential for a sell-off than for any meaningful bond buying.  Remember that rates / yields move inversely to price so that as bonds sell off and drop in price, rates go up.

I'm always happy to help in any way I can so feel free to contact me at 801-893-1737 or 702-812-1214.  As a reminder, I'm leaving Friday for a vacation (I will have no cell service to speak of) so my next post will come whenever I get back - I may be gone all of next week and I may be back as early as Monday.  Make it a great day and a better end of the week.